Income tax is calculated over the tax year which runs from 6 April to the following 5 April. In the tax year, every individual is allowed a certain amount of income before tax is due. This amount is called a full tax allowance. This name confuses many people who think a tax allowance is an amount of money they are paid. It is not. It is simply the amount of income you are allowed to have before you start paying tax.

There is also a different kind of tax allowance for married couples and registered civil partners where at least one of you was born before 6 April 1935. This is given to you as a discount off your final tax bill. It can make the calculations more difficult.

In 2008–09:

• You pay no tax on the income which is within your full tax allowances.
• You normally pay basic rate tax at 20p in the pound on the income above that. However, in some particular circumstances a limited amount of interest on savings may be taxed at 10p in the pound. The complex details of the 10p rate are explained later.
• Higher rate tax is paid if your income is very high.You will normally pay tax at 40p in the pound on income above £41,435 a year.

Changes introduced in 2008-09 mean that people aged 65 or more will generally pay less tax this year than they did in 2007-08. But many people aged under 65 on modest incomes will pay more income tax than they did in 2007-08. Anyone with an income from a pension will pay more tax if their income is between £5,645 and £16,505 a year. The same limits apply to women who work but are over 60. Anyone who works and pays National Insurance contributions will pay more tax if their income is between about £6,000 and just over £15,000. People with incomes outside these ranges will generally pay less income tax in 2008-09.

There are three stages to working out how much tax, if any, you have to pay:

• your income
• your allowances
• the arithmetic itself.
  

We take you through each stage step by step. You will need to print off the calculation sheet so that you can write down all the information you need.